Project

Procurement
Management
 Importance of Project
Procurement Management

◍ Procurement means acquiring goods and/or

services from an outside source.
◍ Other terms include purchasing and
outsourcing.
◍ Experts predict that global spending on
computer software and services will continue to
grow.
◍ India is the leading country for U.S. offshore
outsourcing.
 Debates on Outsourcing

◍ Some companies, such as Wal-Mart, prefer to do no outsourcing

at all, while others do a lot of outsourcing.

◍ Most organizations do some form of outsourcing to meet their

IT needs and spend most money within their own country.

◍ The U.S. temporary workforce continues to grow as people work

for temporary job agencies so they can more easily move from
company to company.
 Why Outsource?
◍ To reduce both fixed and recurrent costs.

◍ To allow the client organization to focus on its

core business.

◍ To access skills and technologies.

◍ To provide flexibility.

◍ To increase accountability.
 Contracts

◍ A contract is a mutually binding agreement that

obligates the seller to provide the specified products
or services and obligates the buyer to pay for them.
◍ Contracts can clarify responsibilities and sharpen
focus on key deliverables of a project.
◍ Because contracts are legally binding, there is more
accountability for delivering the work as stated in the
contract.
◍ A recent trend in outsourcing is the increasing size
of contracts.
 Project Procurement Management
Processes

◍ Project procurement management: Acquiring goods and

services for a project from outside the performing
organization.
◍ Processes include:
1. Planning purchases and acquisitions: Determining what
to procure, when, and how.
2.Planning contracting: Describing requirements for the
products or services desired from the procurement and
identifying potential sources or sellers (contractors,
suppliers, or providers who provide goods and services to
other organizations).
 Project Procurement
Management
Processes (cont’d)
3. Requesting seller responses: Obtaining information, quotes,
bids, offers, or proposals from sellers, as appropriate.
4. Selecting sellers: Choosing from among potential suppliers
through a process of evaluating potential sellers and
negotiating the contract.
5. Administering the contract: Managing the relationship with
the selected seller.
6. Closing the contract: Completing and settling each contract,
including resolving any open items.
 1. Planning Purchases and
Acquisitions

◍ Identifying which project needs can

best be met by using products or
services outside the organization.

◍ If there is no need to buy any

products or services from outside the
organization, then there is no need to
perform any of the other procurement
management processes.
 Tools and Techniques for
Planning Purchases and Acquisitions

◍ Make-or-buy analysis: General

management technique used to determine
whether an organization should make or
perform a particular product or service
inside the organization or buy from
someone else.
◍ Often involves financial analysis.
◍ Experts, both internal and external,
can provide valuable inputs in
procurement decisions.
 Make-or-Buy Example

◍ Assume you can lease an item you

need for a project for $800/day. To
purchase the item, the cost is $12,000
plus a daily maintenance cost of
$400/day.
How long will it take for the purchase
cost to be the same as the
lease cost?
 Make-or Buy Solution
◍ Set up an equation so both options, purchase and lease, are
equal. In this example, use the following equation. Let d be the
number of days to use the item:
$12,000 + $400d = $800d

Subtracting $400d from both sides, you get:

$12,000 = $400d

Dividing both sides by $400, you get:

d = 30
◍ If you need the item for more than 30 days, it is more
economical to purchase it.
 Types of Contracts

◍ Different types of contracts can be used in different

situations:
Fixed price or lump sum contracts: Involve a fixed total
price for a well-defined product or service.

Cost reimbursable contracts: Involve payment to the

seller for direct and indirect costs.
 Types of Contracts

Time and material contracts: Hybrid of both fixed price

and cost reimbursable contracts, often used by
consultants.
Unit price contracts: Require the buyer to pay the seller
a predetermined amount per unit of service.
◍ A single contract can actually include all four of
these categories, if it makes sense for that particular
procurement.
 Contract Clauses

◍ Contracts should include specific clauses to take into

account issues unique to the project.

◍ Can require various educational or work experience for

different pay rights.

◍ A termination clause is a contract clause that allows

the buyer or supplier to end the contract.
 Procurement Management
Plan
◍ Describes how the procurement processes will be
managed, from developing documentation for making
outside purchases or acquisitions to contract closure.

◍ Contents varies based on project needs.

 Contract Statement of Work
(SOW)
◍ A statement of work is a description of the work
required for the procurement.
◍ If a SOW is used as part of a contract to describe
only the work required for that particular contract, it
is called a contract statement of work.
◍ A SOW is a type of scope statement.
◍ A good SOW gives bidders a better understanding of
the buyer’s expectations
 Contract Statement of Work
(SOW)
◍ A statement of work is a description of the work
required for the procurement.
◍ If a SOW is used as part of a contract to describe
only the work required for that particular contract, it
is called a contract statement of work.
◍ A SOW is a type of scope statement.
◍ A good SOW gives bidders a better understanding of
the buyer’s expectations
 2. Planning Contracting

◍ Involves preparing several documents needed for

potential sellers to prepare their responses and
determining the evaluation criteria for the contract
award.
Request for Proposals: Used to solicit proposals from prospective
sellers.
• A proposal is a document prepared by a seller when there are
different approaches for meeting buyer needs.
Requests for Quotes: Used to solicit quotes or bids
from prospective suppliers. bid, also called a tender or quote (short
for quotation), is a document prepared by sellers providing pricing
for standard items that have been clearly defined by the buyer.
Request for Proposal (RFP)
Template
 3. Requesting Seller
Responses
◍ Deciding whom to ask to do the work, sending
appropriate documentation to potential sellers, and
obtaining proposals or bids.
• Organizations can advertise to procure goods and
services in several ways:
– Approaching the preferred vendor.
– Approaching several potential vendors.
– Advertising to anyone interested.
• A bidders’ conference can help clarify the buyer’s
expectations.
 4. Selecting Sellers

◍ Also called source selection.

• Involves:
– Evaluating proposals or bids from sellers.
– Choosing the best one.
– Negotiating the contract.
– Awarding the contract.
Sample Proposal Evaluation
Sheet
 Seller Selection Process

◍ Organizations often do an initial evaluation of all

proposals and bids and then develop a short list of
potential sellers for further evaluation.

• Sellers on the short list often prepare a best and

final offer (BAFO).
• Final output is a contract signed by the buyer and
the selected seller.
 5. Administering the Contract

◍ Ensures that the seller’s performance meets

contractual requirements.

• Contracts are legal relationships, so it is important

that legal and contracting professionals be involved
in writing and administering contracts.

• Many project managers ignore contractual issues,

which can result in serious problems.
 Suggestions for Change Control in
Contracts
◍ Changes to any part of the project need to be
reviewed, approved, and documented by the same people
in the same way that the original part of the plan was
approved.
◍ Evaluation of any change should include an impact
analysis. How will the change affect the scope, time,
cost, and quality of the goods or services being
provided?
◍ Changes must be documented in writing. Project team
members should also document all important meetings
and telephone phone calls.
 Suggestions for Change Control in
Contracts
◍ Project managers and teams should stay closely
involved to make sure the new system will meet business
needs and work in an operational environment.

◍ Have backup plans.

◍ Use tools and techniques, such as a contract change

control system, buyer-conducted performance reviews,
inspections and audits, and so on.
 6.Closing the contract
◍ The formal process of completing all contract-related
activities and ensuring that all terms and conditions have
been met by both parties.
◍ This includes verifying that all deliverables have been
received and accepted, resolving any outstanding issues or
disputes, ensuring that all financial obligations have been
settled, and officially documenting the closure of the
contract.
◍ This process is essential to confirm that the contract's
objectives have been achieved and to release any remaining
resources or funds associated with the contract.
END